Fitch Affirms Banco Bradesco S.A.'s IDRs; Outlook Negative

September 01, 2016 04:54 PM Eastern Daylight Time

SAO PAULO & RIO DE JANEIRO--(BUSINESS WIRE)--Fitch Ratings has today affirmed the ratings for Banco Bradesco S.A.'s
(Bradesco), including the Long-Term Foreign and Local Currency IDRs at
'BB+'/Outlook Negative. A full list of rating actions follows at the end
of this release.

KEY RATING DRIVERS

VR, IDRs, NATIONAL RATINGS AND SENIOR DEBT

Bradesco's Long-Term Foreign- and Local-Currency IDR are driven by the
bank's 'bb+' Viability Rating (VR) and reflects its consistent
performance throughout the economic cycles, even during periods of
economic crises; the solid franchise in the local market; conservative
risk administration; diversified revenue and funding bases; strong
liquidity; adequate asset quality; and good capitalization.

Bradesco's VR is constrained by the Brazil's operating environment. Its
VR was downgraded some notches since October 2015, following the
downgrades of Brazil's sovereign rating. Bradesco's IDRs are one notch
above Brazil's rating and are constrained by the country ceiling (BB+),
reflecting the bank's very strong credit profile.

The Negative Outlook for the banks' Long-Term IDR mirrors the Negative
Outlook on the sovereign's IDRs. The Rating Outlook for the National
Long-Term Rating is Stable.

On June 8, 2016 the authorities approved the acquisition, by Bradesco,
of HSBC Bank Brasil S.A. - Banco Multiplo (HSBC Brasil), the sixth
largest commercial bank in the country. In Fitch Ratings' opinion, this
transaction is complementary with the bank's current business model,
mainly in high net-worth and in the corporate market, although the bank
paid a high price for the acquisition. Such an acquisition should add
between 2% and 3% market share in terms of assets, credit and deposits,
thus improving its already strong franchise and competitive position. As
with any merger and acquisition transaction, the business model and IT
integration will be essential, as well as the retention of clients and
professionals, but Bradesco has capacity to overcome these challenges,
given the banks' successful record with other acquisitions.

Bradesco has achieved or has been close to achieving its credit, revenue
and result goals, showing the flexibility to revise them during adverse
economic scenarios. This view has prevailed since 2012, given the
country's weak operating environment. Bradesco has a relatively low and
very well-controlled risk appetite, especially with credit, including
its exposure to private securities.

Bradesco's profitability is still better than that of local retail
banks' averages, with ROAE and ROAA of 18.7% and 1.5%, respectively,
since 2012, despite the increase credit costs and the lower credit
portfolio growth. The bank has adopted a strategy of controlling credit
expansion in traditional business segments and higher exposure to lower
risk segments, which should minimize pressures from the current
operating environment challenges.

As with local peers, Bradesco's asset quality indicators have been
weakening since 2014, with non-performing loans (NPLs) of 4.6% in June
2016 from 4.1% in December 2015 and 3.5% in 2014, following the
recessive operating environment. However, the bank has increased credit
provisions, and loan loss reserves covered a high 201%, with BRL6.4
billion provisioning above local rules in June 2016. The bank's robust
revenue-generating capacity and conservative level of provisions should
provide it with strong loss absorption capacity.

Bradesco's ample client deposit base, as well as its conservative
funding policies, ensures a strong liquidity position. The adequate
Fitch core capital (FCC, 11.9% in June 2016) ratio has increased since
2013, following the gradual implementation of Basel III local rules,
which should not be a challenge for the bank. The regulatory capital has
remained stable (17.7% in June 2016).

SUPPORT RATING AND SUPPORT RATING FLOOR

Bradesco's Fitch Sovereign-based Support Rating of '3' and Support
Rating Floor of 'BB-', reflect the bank's ample size and domestic
systemic importance, but also indicates the moderate probability of
support due to uncertainties surrounding the capacity or willingness of
the Brazilian government to provide support. Bradesco is systemically
important for the country, as it is the second largest private bank. It
holds high market share in various domestic financial system segments,
with approximately 11% of total assets and 9% of the financial system
deposits in December 2015 and plays a fundamental role in the private
pension system and insurance sector.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

The IDR of its subordinated notes is two notches below its VR,
reflecting the regular notching applied by Fitch to hybrid securities
with coupon deferral mechanisms. More specifically, the securities are
notched once due the higher loss severity derived from its subordinated
nature and another notch due to incremental non-performance risk imposed
by the ability to defer coupon payments when the minimum regulatory
capital ratio is breached.

RATING SENSITIVITIES

IDRs, SENIOR AND SUBORDINATED DEBT

Bradesco's IDRs and debt ratings are sensitive to a change in Fitch's
assumptions around specific issuer rating factors and rating factors
affecting the sovereign. The Negative Outlook on the IDRs reflects
Fitch's current negative view on the operating environment for Brazilian
banks, which in turn is heavily influenced by the Negative Outlook on
Brazil's Sovereign rating. Bradesco's ratings could be downgraded if the
sovereign's ratings are further downgraded. The Rating Outlook for the
sovereign is negative.

NATIONAL RATINGS

As the National Ratings are at the highest possible rating on Fitch's
Rating Scale, a further upgrade would not be possible, thus the Rating
Outlook for the National Rating is Stable. These ratings could only be
downgraded in the event of Bradesco being rated at or below the
sovereign rating on the international scale.

VR

Bradesco's VRs are sensitive to a change in Fitch's assumptions
regarding the bank's rating factors. Bradesco's VR could be negatively
affected in case of loss absorption capacity reduction, or sustained
FCCs lowering to less than 9% and decline in provisioning ratios from
current levels. ROAA below 1.25% and NPLs above 6%, for a sustained
period, could also lead to a downgrade of the bank's ratings.

SUPPORT RATING AND SUPPORT RATING FLOOR

The SR is potentially sensitive to any change in assumptions around the
propensity or ability of the sovereign to provide timely support to the
bank.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

Bradesco's subordinated debt ratings are broadly sensitive to the same
considerations that might affect bank's VR.

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